Gabriel Makhlouf, Secretary to the Treasury and Graeme Wheeler, Governor of the Reserve Bank of New Zealand today welcomed the completion of a Declaration that will strengthen cooperation between the macroeconomic authorities in Trans Pacific Partnership (TPP) countries, including New Zealand.

TPP parties, at the instigation of the United States Treasury, have been working on the Declaration. The United States Congress requires the US Administration to demonstrate progress on the principal negotiating objective of avoiding ‘unfair’ currency practices before passing legislation to enable TPP.

The Declaration is an agreement between agencies within each TPP country that deals with macroeconomic policy. It does not create any binding legal or political obligations for New Zealand.

Parties to the Declaration commit to maintaining exchange rate regimes that reflect economic fundamentals and refrain from competitive devaluation. These commitments are consistent with New Zealand’s policy settings and line up with the commitments New Zealand has made as a member of the International Monetary Fund. The Declaration will not restrict New Zealand’s ability to adjust our macroeconomic policy in future.

More broadly these commitments could help support stronger trade between TPP countries and seek to avoid practices that are harmful to economic growth and financial stability.

The joint Declaration also requires the release of a range of macroeconomic information and data to support dialogue and improve transparency. The Reserve Bank and Statistics New Zealand comply with this section of the Declaration.

The joint Declaration sets up regular dialogue on macroeconomic and exchange rate policy issues, with the aim of sharing information and understanding the impact of policies on other countries.

As a small open economy we are aware that other countries’macroeconomic choices can affect our own economy. We also recognise that macroeconomic stability plays an important role in supporting stronger trading and investment flows.

New Zealand’s sound macroeconomic policy settings and open and transparent approach to data are consistent with the Declaration. The Treasury and the Reserve Bank look forward to the opportunity to deepen dialogue with our trading partners.

Why was the Declaration negotiated in the context of TPP?

This was one of a number of issues that the US Congress has required the US Executive to demonstrate progress on, before it will consider passing the legislation necessary to implement TPP.

Does New Zealand comply with the Declaration?

Yes. New Zealand’s practice and policy is consistent with the elements set out in the Declaration.

New Zealand has a freely-floating exchange rate, an independent central bank operating monetary policy with the goal of stabilising inflation, and limited and targeted exchange rate intervention policy.

Our macroeconomic policy settings and frameworks are based on delivering macroeconomic stability with a view to supporting trade and investment.

Would the Reserve Bank’s policy on currency intervention breach the Declaration?

No. The framework does not restrict the ability of the RBNZ to intervene.

The framework setting out the operating of currency intervention policy under Section 16 of the Reserve Bank of New Zealand Act provides for interventions when the exchange rate is exceptionally high or low and clearly unjustified by economic fundamentals. This is consistent with the text of the Declaration.

Is this Declaration legally binding?

No. This is an understanding among our macroeconomic agencies. It is not a treaty among TPP governments.

Will this restrict New Zealand’s ability to change its exchange rate regime or approach to monetary policy?

No. The text on exchange rates largely echoes New Zealand existing commitments under Article IV of the IM Articles of Agreement.

The exchange rate elements of the Declaration – for example the avoidance of exchange rate manipulation - are helpful in supporting stronger trade.

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